RANDOM ECONOMIC OBSERVATIONS WHILE TRAVELING THE RUSTBELT

Co:

Columbus is in much better shape than say Detroit or Cleveland, but there are budget, housing and infrastructure problems among other issues. Columbus used to be considered recession proof due to government and insurance companies, but no more.

It is a great city though, and it is greater because my grandchildren live there.  :))

Come visit New York City. Everything seems hunky-dory, new mall recently opened in Queens bursting at seams, townhouses getting multiple offers, etc.

Then, my aunt, who works at a medical office as an ultrasound tech, says patient traffic halved in the last 6 months to a year. I thought, of all jobs, hers couldn’t be safer. You won’t see it driving by though, I guess.

Let me say that having lived in both Michigan and Ohio at times, I think a lot of the rustbelt’s problems are self-inflicted.  That said, a decade of recession with another coming up and nothing but a black hole beyond that is a lot to ask of people.

I do think about the problems at times, and the best I can come up with is this:

1.  You folks possibly need to change.  And awful lot of your more thoughtful, creative etc minds seem to end up on the coasts.  If you don’t provide them with a culture they enjoy, you may end up right back where you are in half a century even if you do manage somehow to solve today’s problems.  BTW, that’s not true of everyplace in flyover country.  I’ve also lived in St Paul and spent a lot of time in Austin.  Bluntly, they are much more attractive places to live than Detroit and Dayton.

2.  There is no point in racing Mississippi, Puerto Rico, and Somolia to the bottom.  You’ll lose.

3.  There isn’t much point in competing with 49 other states, ten provinces and about 30 developed countries for “future” industries like biotech and green energy.  You have no unique resources other than some decent Universities.  Other states have good schools.  You’ll spend more money in bribes (tax breaks, infrastructure upgrades, etc) than you’ll make in business investment.  Let someone else “win” that fight.

4.  You need to make a decision about saving your light industry.  Either you should abandon it, or you need to fight — and probably fight dirty — to keep it.  It’s really your only asset other than agriculture.  But maybe it has so little future that it’s not worth fighting for.

5.  If you are going to try something dramatic, tackle some problem everyone else is avoiding, or some area that is just plain frightening.  e.g.

a.  Legalize drugs.  Regulate them.  Tax them.  Arrest any DEA agent who gives you a hard time for felony jaywalking or whatever.  Become to recreational drug usage what Nevada is to gambling.

b.  Replace your health care system with one that works and doesn’t cost a fortune.  You know how hard it is to do that.  But if you could pull it off, you could be America’s health care resource.  That is marketable.  Next to impossible?  Sure.  What else do you have to do with your spare time and excess resources.

c.  There looks to be some really, really odd case law on the subject of Sovreigns(States) and patents — see  Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank.   What it seems to come down to is that state governments aren’t exactly immune from patent infringement, but they can’t be sued for it in Federal Court.  Maybe, just maybe, the state governments of Michigan and Ohio can manufacture patented products — memory chips, prescription drugs, etc — without paying royalties to the patent holders.  That may not be the only peculiar and exploitable option open to Sovreigns.  Why not look into it?

Rusty,

I love in Texas but rest of my side of teh family is in Ohio.  And your right on the mark if not a little optomistic.  Excepting the farm areas the cities I know of Cleveland/Akron are hurting.  And bad with no hope of anything changing soon.  Even with GM being owned by the government its not going to change and probably just pushes back the eventual reckoning.

Vt is correct about most of this being self-inflicted, especially Detroit.  Ohio climate is so anti-business its not even funny (and the state government corruption under the late Republican administration there didn’t help any either).  Look at all the old movies from the late 40s through early 60’s and you will see references of going to the place-to-be cities from Chicago-Detroit-Cleveland-Akron-Pittsburg-Buffalo.  Those were the days. But the rust-belt didn’t adapt and rusted out to a bare shell of its former glory.  Detroit and Buffalo are practically into the third world…

Down here in Texas and much friendlier business climate, right-to-work state, no state income taxes (though property taxes are stiff – but you can control that ), expanding tech and manufacturing sector and pretty decent state government (though Perry is another Dem dream for insuring a Obama second term if he runs).  We have been getting lots of California refugee’s lately.  So we are doing pretty well here!!!

And no snow (except when Al Gore visits…)!

Islam will change

Are these sorts of cycles inevitable? Does success lead to complacency? protection of the status quo?

I think the Cleveland Clinic/CWRU med complex is now the biggest industry in Cleveland.

In my day at CWRU, the biggest industry was pot.

Don’t think the patent infringement industry will take off, though.

STR,

Cycles??  I don’t see the rust belt actually un-rusting anytime soon – i.e. decades.  The unions in cohots with the government practiaccly killed businesses in Ohio. I watched it growing up.  One of the many clear indications was the obvious quality differences in Japanese cars vs. US in the late 70s.  Other obvious: people expected to graduate from High School, never take a day of school again, and live the upper middle class dream.  I watched it from afar after I left as my classmates slowly realized they were never going to live as well as their parents did on bloated union contracts – or watched their parents get laid off. 

As I have said many times. Unskilled labor is unskilled labor. And we are getting killed by trying to compete there.  ONe issue with Texas is that there are entire trades that have been taken over by hispanics (legal and not).  You must speak spanish to be considered to be hired. Thus your competition for unskilled labor cause low pay (min wage).

One of the reasons I never understood the Dems not wanting to crack down on illegal immigration – the illegals were in direct competition with minority and union unskilled labor holding labor costs down – two big Dem groups. But a lot of politics are not logical…

Islam will change

The Democrats assume that when the amnesty is granted most of the newly legal former illegals will vote for democrats, plus some of the unions (such as Seiu) see a ripe organizing opportunity.

Speaking of dying towns I drove down OK 30 from I-40 to us 62 and went thru towns in what was obviously the belt where the okies came from in the 1930s. The down towns looked like sets from the 1920s. Nothing new except at I 40 and a gas station/convience story. 1/2 of the down town stores were empty and the nearest Wal-Mart was 50 miles away. Other small towns in OK had empty downtowns again with no Wal-Mart in site. So depressions in a region can last at least 80 years as in Ok or 60 years as in the Calument area of MI (Copper). If you think about it perhaps put Oh back to ag which Oh has a lot of prime land. Maybe grow switch grass as it grows well there.

***Down here in Texas and much friendlier business climate, right-to-work state, no state income taxes (though property taxes are stiff – but you can control that )***

Texas is far from to worst place in the world although it certainly can rival Southern California and Carl Hiassan’s Florida at times for sheer unadulterated whackiness.  However, you need to understand that many (not all) of those businesses you have befriended will drop you in about 37 seconds if they are offered a better deal elsewhere.  Wasn’t so true a century ago when building a factory meant a huge capital investment that wasn’t very mobile and skilled labor was hard to find.  Nowadays, a software firm or insurance company can be in West Virginia or Winnipeg over a weekend.  And MBAs tend to view all labor as fungible.

So what’s your plan to keep the businesses you entice?  Offer them cheaper and cheaper labor and more and more municipal services until everyone except the bosses is working for minimum wage and is paying ruinous property taxes?  Kidnap the boards of directors and hold them to hostage?  Something else?

Lyle – my daddy was a dustbowl Okie and left a couple of days after graduation and never looked back. OK is the ultimate boom and bust state, and is becoming more urban in terms of total population location.

Tough life though.

1.  First, why all the blame the victim remarks here?  As Joseph Schumpeter wrote capitalism is about “creative destruction,” as old industries and wealth producing areas reach a peak and then decline to be replaced by others.  The current Government of China, still ruled by the Communist Party of China, is a far more interventionist, authoritarian state then any part of the United States, with far less in the way of property rights, but right now, because of its huge, cheap educated labor force it is the darling of libertarians everywhere.  Scott Sumner wrote in claiming, extremely anachronistically, that Adam Smith was a “libertarian democrat” (if you had told Smith that he was a Whig, he would have probably agreed but he would have probably been insulted if you had called him a “democrat” (small d) as that was  considered a bad thing, at least the equal of being called a “commie” or “socialist” today in late 18th century Britain).  Sumner then stated that the Government of Singapore, a one-party state, intervenes less in economy than the U.S. Government.  Again, I wonder what evidence he has to support that assertion? Actually, from what I have read of Singapore, business there is very tightly regulated and supervised with lots of state intervention to promote certain outcomes.  And lots of public goods to the population at large in good schools, good law enforcement, and public parks (with its self-Defense responsibility delegated to the U.S.).

2.  In the 1960s, 70s, 80s, and 90s, it was management decisions GM, Ford, and Chrysler, not the UAW, that made the choices between quality assurance and immediate cost saving regarding its product.  The customer, especially the young boomer customer, could be take crap like the Pinto, the Vega, the K-cars, and the Nova, et. al.  The concern Libertarian trolls who like to blame the Rust Belt problems on the victims, but is not an effect of creative destruction of Schumpeter along with deliberate Government policy to promote a strong dollar against first a weak yen and now a weak reminbi?   Milton Friedman correctly wrote that management should only have the responsbility to make money for the shareholder in mine in running the company.  But Milton never really articulated or addressed if there was a divergence of interests between management, short term shareholders, and long term shareholders.  U.S. management for most large publicly traded companies, has put the its own interests in maximizing there own income while in control of the company and the interests of short term, hot money investors, looking for returns the coming quarter, before the interests of long term investors and the long term prosperity of the company.     

3.  I go to Columbus quite a bit, especially the Dublin area.  There has been a lot of overbuilding of shopping centers, so there has been a lot of the “dead” mall phenomena.  After all, there are only so many Lowes, Home Depots, and Walmarts that a given area can support, and Columbus is an example that way to much U.S. investment was put into commercial retail the last 30 years, spurred by 3 back to back booms (the S&L Savings and Loan deregulation and bust of the 1980s; the internet stock market bubble of the 1990s; and of course the recent historic housing boom and bust cycle).  In each case, consumption got an artificial, steroid like boost from asset appreciation and boom related economic activity above the level that long term median income growth (or lack thereof) could support.  When the tide goes out it leaves the detritus of empty store fronts and closed restaurants that the locals don’t have the money to support.

4.  The Dayton area, supported by the Wright-Patterson Air Force Base and also a […]

To add Houston has a world class medical center, and in MD Anderson, Possibly the best treatment in the world.